Magazine

Struggling to Survive in Yugoslavia

April 08, 2001

By Justin Keay

In Serb, Beograd means "white city." But the color most in evidence in this defiantly unglamorous capital, with some of the worst air quality in Europe, is gray. As you stroll the main boulevard, dodging buses and trying to avoid rubbing against decades worth of grime, Belgrade seems made up of one run-down building after another. Garish kiosks, selling everything from pirated compact disks to potent slivovitz (plum brandy) provide, in the absence of billboards, almost the only color.

Bombed-out official buildings, scattered about like broken teeth, heighten the sense that this place is down on its luck. Most have been left virtually untouched since early 1999, when for three months Belgrade was a target of NATO bombers. Locals seem stunned by the contrast between average monthly wages of just $50 and prices often at or above Western levels. And they express a quiet sense of disbelief at the legacy of former President Slobodan Milosevic. This includes a wrecked economy, widespread corruption and organized crime, frosty relations with neighboring countries, and a reputation as one of the world's rogue nations. Nonetheless, given that Western media reports suggest a country close to collapse, the mood on the streets is surprisingly upbeat. Many people are well dressed; some of the latest Western fashions are worn with a swagger. Cappuccino is sipped at street cafes.

TRICKY. Yet things are not as they seem. Yugoslavia enjoys some private affluence as well as public squalor, to borrow the phrase coined by economist John Kenneth Galbraith. But it's trickier than that. The criminality abetted by Milosevic has resulted in a highly distorted economy that will surely complicate the process of economic reform.

As a visitor, you virtually trip over the black market the moment you step off the plane. At Belgrade Airport, next to the duty-free shop and the bank, shiny racks of the latest, chart-topping CDs greet you--all pirated but sold blatantly, even at this prominent gateway. The extent of the pirated-disk phenomenon really hits you downtown, in Generala Zdanova Street, just yards from Parliament. Here, open late, are more than 20 stalls selling everything from the latest chart-toppers--Madonna's Music, The Beatles' One--to classical disks and film soundtracks, each for $1.50, vs. $15-$20 in shops in Western Europe.

Music disks are not the only items for sale: CD-ROMs and the latest software packages are available at a fraction of what they would cost legitimately. Most are produced on equipment purchased in Sofia two years ago, after Bulgaria--wanting to shed its image as the most corrupt country in Eastern Europe and join the European Union--signed international copyright rules and forced its black marketeers off the streets.

The police are interested, but not as one might expect: I saw two officers arguing loudly at one kiosk. It was only when I got closer that I saw one was advising the other to choose the latest U2 over Lenny Kravitz' Greatest Hits.

"Over the past 10 years, people developed coping mechanisms: remittances from relatives living abroad, savings, but mainly, of course, the black market," says Goran Pitic, Serbia's Minister for International Economic Relations, adding that for most people, the latter has been the only means of survival.

Indeed, for most Serbs, survival is the big issue. The extent of the privation--visible in Belgrade's rundown streets--becomes even more apparent the farther south you travel in Yugoslavia. Farming and industry are at a standstill, and in villages, many laborers pass time outside their houses, apparently at a loss as to what to do next.

"This country is bankrupt," says Serbia's 35-year-old Finance Minister, Bozidar Delic, who left Serbia at age 10 and returned only last November, after 25 years abroad, where he worked for such organizations as McKinsey & Co. "It is breathtaking what we've lost. Once, we were leading almost every other communist country and were a realistic prospect for joining the European Union. Now, we have the living standards of Nigeria."

Proving his point, Delic ticks off a depressing list. Banking is insolvent; hyperinflation and the issue of worthless national bonds have devastated savings. The national infrastructure is in ruins after two decades of zero investment and three months of NATO bombing. The Danube at Novi Sad is still blocked by debris from bridges destroyed in 1999, while roads and railroads need billions in repairs. The litany goes on: Foreign debt is $12.2 billion, equivalent to some 150% of gross domestic product, making Yugoslavia one of the most heavily indebted nations on earth. Unemployment, when underemployment in state-run enterprises is factored in, is close to 50%. Delic says real GDP stands about 40% of the 1989 level. But the sheer size of the black market makes any calculation nonsense; estimates suggest it's equal to 50% of the current GDP of $8 billion.

COMPLEX WEB. Although it enabled many people to survive, the black market--more precisely, the rampant corruption and criminality that underpin it--is the most enduring and poisonous legacy of the Milosevic era. The system diverted tax revenues and scared away foreign investment; more subtly, perhaps, it turned almost everybody into a small-time hustler, a de-facto co-conspirator. Proper business startups were rare, because of a deliberately complex web of rules, lack of startup capital, and because the black market was more lucrative. Today, the gangs that gained power over the past 10 years--including one headed by "Arkan," the former-war-criminal-turned-mobster who was gunned down in the lobby of the Intercontinental Hotel in January, 1999--still hold chunks of the economy in their grip. Given the new political climate, most now keep a lower profile, but they are highly active. In addition to pirating disks, many control smuggling of key high-ticket goods, including liquor and cigarettes, further enriching themselves and depriving the government of much-needed excise duties. Many of the people I spoke to who were buying the pirated disks--and smuggled alcohol and cigarettes--knew that they were, in effect, supporting criminal gangs but said they had no alternative: Buying legitimate goods was simply too expensive.

The government, initially cautious, has now declared it will move against organized crime and, in the words of one minister, "restore normality to a country where you can arrange to have somebody murdered for 200 deutschemarks [$100]." At the prodding of Delic, Serbia has erected border controls with Montenegro, even though it is desperate not to do anything to push the only other remaining member of Yugoslavia to declare independence. Serb officials believe many of the smuggled goods on the Serb market come through this mountainous neighbor.

"We will implement the toughest measures," says anticrime czar and Deputy Prime Minister Vuk Obradovic, a former senior officer in the Yugoslav National Army (YNA). "Organized crime is not stronger than we are." Others are not so sure. In mid-February, there were four attacks on senior government figures, including Interior Minister Dusan Mihajlovic, who escaped injury when his car was sprayed with bullets in downtown Belgrade. "They've just made their first, very cautious moves against the gangs, and this happens. Imagine what's going to break out if they get serious and start making arrests," says Sasa Miercovic, head of popular radio station B92, which airs programs on crime and corruption.

The office of Colonel General Momcilo Perisic is just around the corner from where the Mihajlovic shooting took place. Chief of staff of the YNA until 1998, and now Deputy Prime Minister for national security, Perisic claims that many national institutions, from the army and police down, are still headed by Milosevic appointees with strong links to organized crime. He criticizes what he says has until now been a soft approach to organized crime. "People think they can use democracy to fight these people, but democracy is for normal people," he comments.

It is clear, however, that the best defense against organized crime is economic renewal, and here the authorities hope they have an ace in the hole: the Serbian diaspora, thought to number around 4 million. They believe emigres, investing from abroad, could play as much of a role in the country's renaissance as expatriate Lebanese did in Lebanon in the 1990s. Professionals in particular are being asked to invest or return to play a direct role in building the new Serbia by starting businesses. A Web site--www.belgrad.com--works as a bulletin board to attract reverse migrants, who, it is hoped, will bring cash, and expertise gained in Western firms, to jump-start Yugoslavia's distorted economy. Locals also believe that, with the country poised to rejoin international financial institutions, the black market cannot hold the high ground much longer. "I reckon all this will be gone in six months, a year at most," says Pedja Milosavljevic, a regular at the CD market in Generala Zdanova Street, admitting that sweeping away the black market is the only way forward for Yugoslavia. "But before then, I'm going to set aside a couple of hundred dollars to come here and splurge." Keay, a freelance writer, travels regularly in Central and Eastern Europe.